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The First In First Out (FIFO) method and Import License are two distinct concepts that serve critical roles in global business operations. While FIFO is a fundamental accounting principle for inventory management, an Import License is a regulatory tool used to control international trade flows. Comparing these two provides insight into how businesses balance operational efficiency with compliance under varying market conditions. This comparison explores their definitions, key differences, use cases, and practical implications to help decision-makers navigate complex supply chain and regulatory landscapes.
First In First Out (FIFO) assumes that the oldest items in inventory are sold or consumed first. It is a cost flow assumption used primarily in accounting and inventory management to determine the value of goods sold and ending inventory.
FIFO emerged as a practical solution to inventory management challenges during the Industrial Revolution. It became standardized in accounting practices through frameworks like IFRS and GAAP.
An Import License is a government-issued permit granting permission to import specific goods into a country. It regulates trade volumes, ensures compliance with standards, and protects domestic industries.
Trade restrictions date back to ancient times (e.g., mercantilism in Europe), with modern systems formalized in the 20th century under international agreements like GATT/WTO.
| Aspect | FIFO | Import License |
|---------------------------|-----------------------------------|-------------------------------|
| Purpose | Inventory cost tracking | Trade regulation and control |
| Application | Internal business operations | Government-enforced compliance |
| Implementation | Accounting standards (IFRS/GAAP) | Customs regulations |
| Scope | Company-wide | National or international |
| Compliance Focus | Financial accuracy | Trade laws and tariffs |
| Cost Impact | Affects COGS (cost of goods sold)| Imposes tariffs/quotas |
Advantages:
Disadvantages:
Advantages:
Disadvantages:
Choose FIFO When:
Opt for Import License When:
FIFO and import licenses serve distinct roles: one optimizes internal operations, the other enforces external regulations. Businesses must balance financial accuracy with regulatory compliance to thrive in global markets. While FIFO offers simplicity for inventory tracking, import licenses are vital tools for governments managing economic security and public welfare.